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MATERNITY TRACKER UPDATE | JULY -1.7%

Takeaway: Births slowing, although 2Q15 looking better than we initially anticipated.

MATERNITY TRACKER UPDATE |  JULY -1.7%  - maternity tracker July 2015

NATIONAL AND LOCAL SLOWING

Our Maternity Tracker continues to update with high frequency.  The data appears to run with a high degree of fidelity with CDC birth data reported through December 2014 with an R-square of 0.89.  

 

The Maternity Tracker shows a slowing trend across the months of April to July.  The April trend has been updated to cover a significant data gap we uncovered during our validation process.  As a result, April 2015 reversed what we believed previously to be a negative trend to +1.8% nationally.  

MD & HCA SLOWING

MD: We remain short MD, but the maternity trend has not developed to the downside at our previously anticipated pace for 2Q15. Our best estimate for 2Q15 is +0.7% based on the state-weighted trend.  We will be reviewing other data including ACA Tracker data (published shortly) and the Delivery Index from the June OB/GYN Survey (published shortly).

 

HCA: The state-weighted growth rate for HCA is starting off 2Q15 strong, but has since weakened alongside national trends.  Similar to MD, we'll be rolling up additional data to look at the probability of a positive pre-announcement for 2Q15.  Our preliminary look at Medicaid enrollment, per enrollee spending as well as the JOLTS data released yesterday, suggest the answer is yes, but we'll have more later.  We covered this data yesterday in the studio -->  CLICK HERE

 

MATERNITY TRACKER UPDATE |  JULY -1.7%  - MD HCA table maternity tracker

 

Thomas Tobin

Managing Director 

@HedgeyeHC

 

Andrew Freedman

Analyst

@HedgeyeHIT 

 


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July 8, 2015

July 8, 2015 - HE DTR 7 8 15


Asia, Housing and Base Metals

Client Talking Points

ASIAN CONTAGION

Finally the collapse in Chinese shares spills over into the rest of the region. The Shanghai Composite ended down -5.9% after opening down -7% despite frantic efforts from policymakers to stem the tide including mass trading halts with ~50% of mainland stocks not trading. Bloomberg estimated that the 1,301 companies locked up $2.6T in shares, or ~40% of mainland public equity market cap. The Hang Seng plunged -5.8% – the most in seven years – led lower by a sharp decline in H-shares. The concerns sparked a flight to safety, which pushed up the yen nearly ~1% vs the USD and perpetuated a -3.1% decline in the Nikkei. Taiwan finished down -3% while both Australia and India finished down nearly -2%. We don’t have a view on when and how the contagion will be contained, but we’re not inclined to rush in given that the Chinese equity bubble was perpetuated by unprecedented levels of margin finance. 

HOUSING DEMAND

Perhaps its peri-holiday related noise in the data, maybe it’s resurgent 1st-time buyer demand or simply interest rate catalyzed demand pull-forward, probably its some combination ….but, in any case, mortgage purchase demand in the latest week finally eclipsed the post-crisis highs recorded in 2013.  Purchase Activity rose +6.6% sequentially with year-over-year growth accelerating to +16.9% to start 3Q.  There are some emerging headwinds to performance in 3Q but, for now, the momo in the high-frequency housing data remains in tact.  

BASE METALS

Spillover effects from Grexit Fears and drawdowns in the Shanghai Stock Exchange have supported the USD and hammered commodity prices this week with the base metals taking the brunt of the beating. Big volumes took both silver and nickel limit down on the Shanghai Futures Exchange overnight as traders and investors rush to raise cash and cover margin calls. With the USD back in a BULLISH TREND set-up, and the cyclical and secular trends gripping the U.S. economy, we continue to like early cycle materials on the short-side at a the right time. 

Asset Allocation

CASH 52% US EQUITIES 3%
INTL EQUITIES 8% COMMODITIES 2%
FIXED INCOME 31% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
KATE

We’re all-in on Kate Spade at current levels. The Hedgeye Retail team believes that comps are accelerating into the double digits in 2H, and we think that KATE’s margin guidance for this year will prove conservative. Ultimately, we think that numbers this year are 10% too low – a delta that widens to 20%+ next year, and to 50%+ by 2018 when we think KATE has $2.50 to $3.00 in earnings power. Using decelerating multiples as growth accelerates and the P&L matures gets us 50%+ upside in a year and a 2-3-bagger by 2018.

PENN

Our Gaming, Lodging and Leisure team reiterates its high-conviction thesis on Penn National Gaming. PENN remains one of our favorite names on the long side. It maintains the best new unit growth story in domestic gaming. PENN's property in Massachusetts has had an excellent start. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.

TLT

The Hedgeye Growth, Inflation, Policy (GIP) model is signaling a move into QUAD 3 for the second half of 2015. This is a set-up for the domestic economy where growth is slowing and inflation is accelerating. We reiterate our intermediate to long-term bullish bias on long-duration Fixed Income and gold. Our back-testing results cast a favorable outlook for Long-Term Treasuries, REITs, and Gold with a favorable set-up as seen in the first three charts below. When growth is slowing (QUAD 3 and QUAD 4), long term rates tend to move lower.  The logic is simple:

  • #GrowthSlowing: As growth slows, a revision in forward-looking growth expectations manifest in lower yields
  • #InflationAccelerating: Commodity prices have made a significant move off of the 2015 lows as seen in the last chart below, and we expect the follow-through to play out in Q3 inflation readings. CPI readings track the commodity price sample used in chart #4 below very closely and CPI compares are easy in 2H 2015 vs. more difficult GDP comps (QUAD 3)       

Three for the Road

TWEET OF THE DAY

If you didn't know #SecularStagnation was going to be a big theme for investors and policymakers in 2H15 (and beyond), now you know.

@HedgeyeDDale

QUOTE OF THE DAY

Mountaintops inspire leaders but valleys mature them."

 Winston Churchill

STAT OF THE DAY

Currently in the U.S. nearly one out of every five dollars spent on cookies is spent on an Oreo, in 2014 Oreo had sales of $3.28 billion globally.


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